All is Fair Game

Senate Passes Financial Reform BillThe Senate on Thursday approved the most extensive overhaul of the banking system since the 1930s.

The legislation must still be reconciled with the House bill passed in December.

Measures in both bills that directly affect property transactions include:

Limits on the ability of mortgage lenders to penalize borrowers who pay off loans early.

Stated-income loans would be effectively eliminated.

Lenders would be required to obtain proof from borrowers that they can pay for their mortgages. Buyers would be required to provide tax returns, payroll receipts, or bank documents.

Lenders and brokers will be prohibited from pushing borrowers to accept loans with higher interest rates or with risky features.

Source: The New York Times, Gregg Hitt and Damian Paletta (05/20/2010)

Total Foreclosures Fall, But REOs RiseForeclosure marketer RealtyTrac reported today that properties in all stages of foreclosure from default notices to auctions and repossessions were down 9 percent in April compared with March. They fell 2 percent compared with April 2009. Also, default notices were down 27 percent year over year.

RealtyTrac CEO James J. Saccacio predicted that foreclosures are plateauing, but won’t drop off dramatically any time soon. He pointed out that although default notices have dropped, repossessions are at a record level, indicating that banks are working through their backlogs.

Five states account for 52 percent of the total number of foreclosures: California, Florida, Michigan, Illinois, and Nevada. The states rounding out the top 10 are Arizona, Georgia, Texas, Ohio, and Virginia.

Source: RealtyTrac (05/13/2010)

Half of Owners Think Their Home Value Is UpThe confidence of U.S. home owners in the value of their homes increased in the first quarter, online home site Zillow says based on a survey it conducted.

About 50 percent of home owners surveyed by the Web site think their home's value declined in the past year, according to Zillow.com’s first quarter survey of home owner confidence. In contrast, Zillow thinks that 65 percent of U.S. homes actually declined in value based on its own calculations of value.

To the extent home owners are overconfident about the value of their home, Zillow says, they could feel encouraged to put their home on the market. If a lot of them did so and their home values aren't as high as they think they are, it could have the effect of pushing down prices, says Zillow’s Chief Economist Stan Humphries.

In its survey, Zillow found that 7 percent of home owners – or 5.3 million homes if the survey results were applied to all home owners – would be “very likely” to put their homes on the market in the next 12 months if they believed the market was improving. An additional 8 percent in the Zillow survey said they would be likely to list their homes, while another 14 percent would be somewhat likely.

Source: Zillow.com (05/20/2010)

Liquidation and modification rates on Countrywide-serviced residential loans have edged higher in the past few months, with a larger percentage of mortgage restructurings encompassing principal forgiveness, according to a study just released by Barclays Capital.

The research firm examined loans within residential mortgage-backed securities (RMBS) serviced by Countrywide, now Bank of America Home Loans, and found that while historically, Countrywide-serviced deals have claimed lower-than-average mod rates and long liquidation timelines, that has begun to turn around in the past few months.

Barclays reports that constant default rates (CDRs) on pools of mortgages serviced by the once-subprime leader have improved, primarily due to faster roll rates, as well as rejections from Home Affordable Modification Program (HAMP) trials, which allow the loan to proceed to foreclosure. Analysts at Barclays expect Countrywide’s liquidation rates to continue to increase as more HAMP trials are resolved in the coming months.

Many of these resolutions, though, do include transitions to permanent loan restructurings. Barclays says HAMP conversions have also boosted modification rates for Countrywide, and the research firm found that debt forgiveness mods now make up 10 percent of the servicer’s modified loans, up from 0 percent in January.

According to Barclays, Countrywide’s most recent mods have been on loans that are more than 10 months delinquent as the company continues to sift through a backlog of past dues.

As recently as the end of January, commentary by Barclays’ analysts was considerably less favorable toward Countrywide’s servicing practices.

“In that piece, we discussed several issues with Countrywide-serviced deals – including abysmally low liquidation rates, modification rates that were well below sector averages, and long liquidation timelines. Much has transpired…in the three months since then, Barclays wrote in its study released this week.

The research firm says it as seen “continuous improvement” in current to delinquent rolls and falling 60-plus day delinquencies. In addition, Countrywide/Bank of America announced a new program in March focusing on debt forgiveness mods, that was closely followed by similar changes to the HAMP waterfall. Even more significantly, Barclays says there have been important changes in servicer behavior in the Countrywide camp.

This last point is important, according to Barclays, because Countrywide constitutes 15 to 20 percent of the outstanding universe in subprime/option adjustable-rate mortgages (ARMs), and has the potential to drive sector level performance.

Since January, Barclays notes that the number of loans flowing from 90-day delinquency to foreclosure, and from REO to liquidation, has increased dramatically.

HAMP rejection rates for Countrywide loans have shot up in the past few months and now constitute 36 percent of all resolved trial mods. At the same time, though, the servicer’s HAMP modification rate has doubled since December, with permanent restructurings, in particular, increasing sharply over the last couple of months.

According to the Treasury’s latest HAMP progress report, Countrywide/Bank of America is servicing approximately 215,000 active trial mods and has finalized nearly 57,000 permanent loan restructurings

American Financial Resources, Inc. (AFR Mortgage), a nationwide mortgage banker headquartered in Parsippany, New Jersey, has announced the launch of a new Federal Housing Administration (FHA) correspondent residential mortgage lending division that will purchase closed loans from selected FHA direct endorsed lenders.

The company’s CEO Richard Dubnoff notes that today, the secondary market is faced with many challenges especially for the small to mid-sized mortgage lender.

“There is a real need to provide this type of service to the midsize mortgage banking community,” Dubnoff said. “The AFR Mortgage correspondent lending division will be a trusted source for the secondary market.”

AFR will be one of the few secondary market investors in the country to purchase FHA insured loans on manufactured homes.

Of all frauds perpetrated against financial institutions, mortgage fraud, in particular, has spiked, the Office of Thrift Supervision (OTS) said in a report released this week.

During 2009, the Federal Bureau of Investigation (FBI) delved into more than 2,100 mortgage fraud cases, up 400 percent from five years ago. According to the OTS report, the increase can be attributed to declining economic conditions, liberal underwritings, and declining home values.

While the total dollar loss attributed to mortgage fraud is unknown, at least 63 percent of all pending FBI mortgage fraud investigations during fiscal year 2008 involved dollar losses of more that $1 million each.

With the rapid growth of real estate markets and the development of new technology associated with refinancing and computer-driven underwriting methods, the opportunity for mortgage fraud continues to escalate.

The OTS says warehouse lines have been particularly vulnerable, with their 90-day window of “purchasing” mortgages and awaiting ultimate repayments from final investors.

The FBI reports that equity stripping and property flipping are common schemes. This problem is compounded in instances where an institution has ineffective policies and procedures that are poorly formulated or outdated.

The FBI estimates that 80 percent of all mortgage fraud involves collaboration or collusion by industry insiders. Overall though, according to an FBI Financial Institution Fraud and Failure Report, external fraud schemes outnumber those involving insiders due to the pervasiveness of check fraud and counterfeit negotiable instrument, technological advances, and the availability of personal information through illicit information networks.

The FBI reports that mortgage fraud schemes continue to adapt as the economy changes and that individuals are victimized even as they are about to lose their homes.

Foreclosure rescue scams take several forms but usually involve payment of an upfront fee in exchange for a promise to resolve a pending foreclosure, the OTS report explained. Ultimately, the scam results in unsuspecting victims losing their homes to foreclosure.

While this type of fraud is not perpetrated directly against the bank or thrift, the end result can still have a negative impact on the lender, according to the federal regulator.

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